Another single stock investment – Flight Centre. Flight Centre (FLT) is a household brand in Australia. It has been listed since 1995 and has been negatively impacted over the last decade or so by the technology revolution. Technology has made it easier for consumers to do their own research and prepare their travel arrangements.
A tricky investment given the negative outlook of the their business model…
FLT is transitioning out of a travel agency type business and into more of a travel retailer. What does that exactly mean? FLT is diversifying its product offering and expanding to capture more stable revenue through business customers. It now markets itself as an expert in travel and provides a complete travel service for leisure and business travellers in Australia, New Zealand, U.S., Canada, UK, Africa, Middle East, Asia and Europe.
FLT consists of more than 30 brands with four categories of Leisure, Corporate, Wholesale and other.
There are concerns over the lack of organic growth in the business and that it has been aggressive on the acquisition front to mask that. Analysts have projected declines in EBITDA from margin compression but with the top line continuing to grow. Using acquisition as a growth strategy has been the theme over the last couple of years and seems to be working well.
Competition in the industry is high with a fair number of technology disruptors and a growing sophisticated consumer base lowers margins that FLT can capture. This will lead to margin compression and lower return on equity if FLT cannot adapt.
Performance and Valuation
FLT is currently trading at around $30 a share which is around the 52 week low. At these levels FLT is something to hold over a 3-5yr time frame. It is not a hold for a lifetime type holding given its business model and industry dynamics. I expect 30% upside in 3 years. The $15 of cash on the balance sheet add an additional margin of safety.
FLT has minimal debt with stable and growing dividends. It had a downturn during 2009 at the height of the GFC but who doesn’t. Currently priced at a heavy discount from fair value – in the region of 30% based on low EV/EBITDA multiples of 6x. I expect to sell when the Flight Centre returns to fair value.
I will review this investment at the next annual review.
Disclose:: I am/we have positions in FLT.
Disclaimer: : I wrote this article myself, and it expresses my own opinions. I am not receiving any compensation for it. Please note that all investments carry some risk. You should be aware that the value of your managed investment may not increase as quickly as expected, if at all, or that the value may go down. I have no business relationship with any company whose stock is mentioned in this article.